If inflation lowers demand, would that not eventually offset inflation naturally without government intervention?
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It would, provided that employers can resist higher wage demands that usually accompany inflation. The problem with that is not only that it may make a lot of people feel poorer and upset, it can also lead to overall lower economic output. If people feel poorer and buy less, then companies will also make less than they could in theory given their capacity. If you assume that the things that companies make are generally “good things” then them making less than they could would be a “bad thing”. It’s ultimately the amount of goods and services produced that constitute a nation’s “wealth”, so letting inflation self correct does go hand-in-hand with people on average feeling poorer and arguably being poorer than they might otherwise have been. To some extent this is perhaps unavoidable, but there is a danger. Reduced demand -> reduced output -> more unemployment -> more reduced demand -> … . You could get a downward spiral leading to a great recession. Government interventions try to make sure this spiral doesn’t run down too much, but need to tread carefully. Increase money supply too much and inflation gets worse and you don’t fix the problem. Decrease money supply too quickly and unemployment rises very quickly and you could get a downward spiral that leads to unrest.
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